Sweden Social Democrats will end tax cuts if they win election

STOCKHOLM (Reuters) - Sweden's Social Democrats, once known for charging some of the world's highest taxes, will reverse the country's recent decline in taxes - but not by too much - if they win the general election in September.

Opposition leader Stefan Lofven, head of the party that moulded Sweden's famed cradle to grave welfare state, said he had no target for tax rises but Sweden now needed more funds to invest in social policies after years of cutting back taxes.

In an interview with Reuters, Lofven stressed that didn't mean reintroducing the wealth tax and property tax abolished by the centre-right government in office since 2006.

But he criticised Prime Minister Fredrik Reinfeldt's right-of-centre government for building up a large budget deficit and said tax cuts had failed to bring down unemployment, which was now higher than when the government took power.

"We have a crossroads now in Swedish politics. Should we continue to cut taxes ... or should we use the money for investing in homes, education and jobs?" Lofven asked. "We choose the latter. We will invest, we won't cut taxes."

The current government cut taxes by some 130 billion crowns (11.8 billion pounds) over the last eight years, bringing their level down to under 45 percent of GDP, but says it needs to bolster its finances ahead of any future crisis and has flagged for higher duties on vehicles and tobacco, among other things.

Lofven said the government had slashed taxes without a larger economic strategy. "It hasn't been to stimulate the economy, it has been for ideological reasons," he said.

The increases he envisages amount to only about 20 billion Swedish crowns out of a budget of 1,800 billion, Lofven said, commenting: "It's on the margin."

WELFARE PRIORITIES

Most Swedes have got richer in the last few years while much of Europe has been mired in austerity. The economy is expected to grow 2.5 percent this year and pick up further in 2015.

But high unemployment and declining standards in welfare and schools have forced voters to rethink their priorities and the centre-left has taken a clear lead in polls with promises to bolster jobs, healthcare and schools.

"I talk about jobs, jobs every hour, every day," said Lofven, a former postal worker and welder. Getting more people into work is "decisive ... in the long run for us to be able to support the welfare state."

Sweden should aim to have the lowest unemployment in the European Union, Lofven said. That position is held by Austria, with joblessness around 4.9 percent in March, while Sweden was in 11th place with unemployment at 8.1 percent.

The Social Democrats could consider giving the central bank a clearer target to focus on employment as part of its overall mandate, he added.

ELECTION WINNER

Lofven took over as leader of the Social Democrats in 2012 and has turned around the fortunes of the party after a poor showing in the 2010 election.

The latest polls give the combined centre-left opposition of the Social Democrats, the Green Party and the Left Party around 52 percent of the vote against around 38 percent for the centre-right Alliance government.

Lofven was careful to stress a Social Democratic-led government would be a careful guardian of public finances.

"We can't allow the build up of a deficit like the current government has done because, sooner or later, that is going to make itself felt," he said.

The public sector deficit is expected to be 1.6 percent of gross domestic product this year and not to reach the target of a surplus of 1 percent until 2017, according to the government.

The Social Democrats have already said they will gradually reverse income tax cuts introduced in January, axe lower VAT on restaurant meals and cut tax breaks on pension savings.

But Lofven said that would make little difference to overall tax take, which has fallen to around 44.4 percent of GDP from 48.3 percent when the Alliance took power. Total tax revenue peaked at 57.7 percent of GDP in 1990, according to the Organisation for Economic Cooperation and Development (OECD).